SEC Filing | Decibel Therapeutics, Inc.

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission File Number: 001-40030

Decibel Therapeutics, Inc.

(Exact name of Registrant as specified in its Charter)


Delaware	46-4198709
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1325 Boylston Street, Suite 500 Boston, Massachusetts	02215
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 370-8701

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	DBTX	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2023, the registrant had 25,126,935 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	93
Item 3.	Defaults Upon Senior Securities	93
Item 4.	Mine Safety Disclosures	93
Item 5.	Other Information	93
Item 6.	Exhibits	94
Signatures		95

Cautionary Note Regarding Forward-Looking Statements and Industry Data

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

•

our plans and expectations regarding the proposed acquisition of us by Regeneron Pharmaceuticals, Inc., or Parent, pursuant to the merger agreement that we entered into with Parent and its wholly owned acquisition subsidiary on August 8, 2023, including the anticipated timeframe in which to complete the transaction, and all related matters;

•

the initiation, timing, progress and results of our current research and development programs, preclinical studies and clinical trials;

•

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

•

our plans to develop our product candidates and programs;

•

the timing of and our ability to submit applications for, obtain and maintain regulatory approvals for our product candidates;

•

our estimates regarding the potential patient populations for our product candidates and programs;

•

our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and available-for-sale securities;

•

the potential advantages of our product candidates and programs;

•

the potential advantages of our platform;

•

the rate and degree of market acceptance and clinical utility of our product candidates and programs;

•

our estimates regarding the potential market opportunity for our product candidates and programs;

•

our commercialization, marketing and manufacturing capabilities and strategy;

•

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;

•

the impact of government laws and regulations;

•

our competitive position;

•

developments relating to our competitors and our industry;

•

our ability to maintain and establish collaborations or obtain additional funding; and

•

our expectations regarding the time during which we will be an emerging growth company under the Jumpstart our Business Startup Acts of 2012.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factor Summary” below and in Part II, Item 1A, “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference hereto completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates of potential market opportunities. The market data used in this Quarterly Report on Form 10-Q involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Although we are responsible for the disclosure contained in this Quarterly Report on Form 10-Q and we believe the information from industry publications and other third-party sources included in this Quarterly Report on Form 10-Q is reliable, such information is inherently imprecise. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

Risk Factor Summary

Our business is subject to a number of risks of which you should be aware before making an investment decision. Below we summarize what we believe to be the principal risks facing our business, in addition to the risks described more fully in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.

If any of the following risks occur, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.

•

The conditions under the agreement and plan of merger, dated as of August 8, 2023, that we entered into with Regeneron Pharmaceuticals, Inc., or Parent, and its wholly owned acquisition subsidiary, or Purchaser, to Parent’s consummation of the tender offer and our subsequent merger with Purchaser may not be satisfied in the anticipated timeframe or at all. The failure to consummate the transactions contemplated by the merger agreement would adversely affect our business;

•

While the tender offer and proposed merger are pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business;

•

Litigation that may be filed against us, our officers and the members of our board of directors could prevent or delay the consummation of the tender offer and merger;

•

In the event that the merger agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Parent and the trading price of our common stock and our future business and results of operations may be negatively affected;

•

We have incurred significant losses since our inception, have no products approved for sale and we expect to incur substantial losses for the foreseeable future and may never achieve or maintain profitability;

•

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our research and development programs or commercialization efforts;

•

Since our cash, cash equivalents and available-for-sale securities as of June 30, 2023 are not sufficient to fund our operations for at least twelve months from the date of issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report, there is substantial doubt about our ability to continue as a going concern;

•

Our limited operating history may make it difficult for stockholders to evaluate the success of our business to date and to assess our future viability;

•

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel;

•

We are early in our development efforts. Our business is dependent on our ability to advance our lead gene therapy product candidate, DB-OTO, and our other current and future product candidates through preclinical studies and clinical trials, obtain marketing approval and ultimately commercialize them. If we are unable to complete preclinical and clinical development, obtain regulatory approval for or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed;

•

Clinical development involves a lengthy and expensive process with uncertain outcomes, and results of earlier studies and trials may not be predictive of future clinical trial results. If our preclinical studies and clinical trials are not sufficient to support regulatory approval of any of our product candidates, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of such product candidate;

•

Gene therapy is an emerging field of drug development that poses many risks. We have only limited prior experience in gene therapy research and no prior experience in gene therapy clinical development. Our lack of experience and the limited patient populations for our gene therapy programs may limit our ability to be successful or may delay our development efforts;

•

If we experience delays or difficulties in participant enrollment for clinical trials, our research and development efforts and the receipt of necessary regulatory approvals could be significantly delayed or prevented;

•

Our product candidates or the process for administering our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval;

•

The manufacture of gene therapy products is complex and difficult and is subject to a number of scientific and technical risks, some of which are common to the manufacture of drugs and biologics and others of which are unique to the manufacture of gene therapies. We could experience manufacturing problems that result in delays in our gene therapy development or commercialization programs;

•

We rely, and expect to continue to rely, on third parties to conduct some or all aspects of our product manufacturing, research, preclinical and clinical testing, and these third parties may not perform satisfactorily;

•

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do;

•

Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could harm our business; and

•

Our rights to develop and commercialize any product candidates are subject and may in the future be subject, in part, to the terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future intellectual property license agreements, including applicable diligence milestones, or otherwise experience disruptions to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DECIBEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share data)


	June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	39,803		$	34,607
Available-for-sale securities		38,497			69,954
Prepaid expenses and other current assets		2,149			3,469
Total current assets		80,449			108,030
Property and equipment, net		3,960			4,526
Right-of-use asset, operating		8,948			9,859
Right-of-use asset, finance		96			34
Other assets		934			924
Total assets	$	94,387		$	123,373
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	617		$	1,064
Accrued expenses and other current liabilities		10,291			8,409
Deferred collaboration liability, current		12,007			9,383
Operating lease liability, current		3,612			3,567
Finance lease liability, current		51			19
Total current liabilities		26,578			22,442
Long-term liabilities:
Deferred collaboration liability, long-term		3,399			6,765
Operating lease liability, long-term		9,138			10,467
Finance lease liability, long-term		46			—
Other long-term liabilities		1,914			1,906
Total liabilities		41,075			41,580
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2023 and December 31, 2022		—			—
Common stock, $0.001 par value; 200,000,000 shares authorized, 25,126,935 shares issued and outstanding at June 30, 2023; 200,000,000 shares authorized, 24,964,502 shares issued and outstanding at December 31, 2022		25			25
Additional paid-in capital		362,288			359,508
Accumulated other comprehensive loss		(35	)		(223	)
Accumulated deficit		(308,966	)		(277,517	)
Total stockholders’ equity		53,312			81,793
Total liabilities and stockholders’ equity	$	94,387		$	123,373

The accompanying notes are an integral part of these condensed consolidated financial statements.

DECIBEL THERAPEUTICS, INC.

CONDENSED conSOLIDATED Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Operating expenses:
Research and development	$	12,828		$	11,241		$	20,762		$	18,707
General and administrative		6,213			5,862			12,400			12,415
Total operating expenses		19,041			17,103			33,162			31,122
Loss from operations		(19,041	)		(17,103	)		(33,162	)		(31,122	)
Other income:
Interest income		976			95			1,854			158
Total other income, net		976			95			1,854			158
Net loss before provision for income taxes		(18,065	)		(17,008	)		(31,308	)		(30,964	)
Provision for income taxes		(80	)		(38	)		(141	)		(98	)
Net loss	$	(18,145	)	$	(17,046	)	$	(31,449	)	$	(31,062	)
Net loss per share, basic and diluted	$	(0.73	)	$	(0.68	)	$	(1.26	)	$	(1.24	)
Weighted average shares of common stock outstanding, basic and diluted		25,017,851			24,958,678			25,003,634			24,956,932

Comprehensive loss:
Net loss	$	(18,145	)	$	(17,046	)	$	(31,449	)	$	(31,062	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax of $0		26			(61	)		188			(456	)
Total other comprehensive income (loss)		26			(61	)		188			(456	)
Comprehensive loss	$	(18,119	)	$	(17,107	)	$	(31,261	)	$	(31,518	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

DECIBEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED Statements of Stockholders’ EQUITY

(Unaudited)

(In thousands, except share data)


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at December 31, 2021		24,951,983	$	25	$	356,308	$	(132	)	$	(214,512	)	$	141,689
Vesting of restricted common stock		4,573		—		—		—			—			—
Stock-based compensation expense		—		—		842		—			—			842
Unrealized loss on available-for-sale securities		—		—		—		(395	)		—			(395	)
Net loss		—		—		—		—			(14,016	)		(14,016	)
Balance at March 31, 2022		24,956,556	$	25	$	357,150	$	(527	)	$	(228,528	)	$	128,120
Vesting of restricted common stock		3,292		—		—		—			—			—
Stock-based compensation expense		—		—		845		—			—			845
Unrealized loss on available-for-sale securities		—		—		—		(61	)		—			(61	)
Net loss		—		—		—		—			(17,046	)		(17,046	)
Balance at June 30, 2022		24,959,848	$	25	$	357,995	$	(588	)	$	(245,574	)	$	111,858


Balance at December 31, 2022		24,964,502	$	25	$	359,508	$	(223	)	$	(277,517	)	$	81,793
Stock-based compensation expense		—		—		977		—			—			977
Issuance of common stock, net of issuance costs of less than $0.1 million		50,482		—		216		—			—			216
Unrealized gain on available-for-sale securities		—		—		—		162			—			162
Net loss		—		—		—		—			(13,304	)		(13,304	)
Balance at March 31, 2023		25,014,984	$	25	$	360,701	$	(61	)	$	(290,821	)	$	69,844
Stock-based compensation expense		—		—		1,373		—			—			1,373
Issuance of common stock upon exercise of stock options		7,190		—		29		—			—			29
Issuance of common stock under the employee stock purchase plan		104,761		—		185		—			—			185
Unrealized gain on available-for-sale securities		—		—		—		26			—			26
Net loss		—		—		—		—			(18,145	)		(18,145	)
Balance at June 30, 2023		25,126,935	$	25	$	362,288	$	(35	)	$	(308,966	)	$	53,312

The accompanying notes are an integral part of these condensed consolidated financial statements.

Decibel Therapeutics, Inc.

CONDENSED CONSOLIDATED Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2023			2022
Operating activities
Net loss	$	(31,449	)	$	(31,062	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		2,350			1,687
Depreciation		663			729
Non-cash lease expense		954			880
(Accretion)/Amortization of available-for-sale securities		(698	)		517
Changes in operating assets and liabilities:
Accounts receivable from related party		—			1,402
Prepaid expenses and other current assets		1,282			(1,715	)
Other long-term assets		—			(104	)
Accounts payable		(267	)		(2,097	)
Accrued expenses and other current liabilities		1,859			686
Deferred collaboration liability		(742	)		(5,222	)
Operating lease liability		(1,284	)		(1,139	)
Other long-term liabilities		8			23
Net cash used in operating activities		(27,324	)		(35,415	)
Investing activities
Purchases of available-for-sale securities		(13,157	)		(39,250	)
Proceeds from maturities and redemptions of available-for-sale securities		45,500			94,918
Purchases of property and equipment		(254	)		(221	)
Net cash provided by investing activities		32,089			55,447
Financing activities
Proceeds from equity offerings, net of issuance costs		216			—
Proceeds from the exercise of stock options		29			—
Proceeds from the issuance of common stock under the employee stock purchase plan		185			—
Principal payments on finance lease liability		(27	)		(104	)
Net cash provided by (used in) financing activities